This allows integration of budgets with other initiatives like KPIs among others. It is activities that bring out costs and is products that create demands for activities. This helps staff increase the enthusiasm and passion on working. So budgeting should offer an advanced material and give a panorama of what will happen in finance.
This is favorable for clearly analyzing the inefficient or unbalanced operating causes when analyzing variations. It also helps the organization to gain a competitive edge in the market. Lower level managers and employees can discuss in operational terms instead of financial terms Since it provides a clearer picture of how resources and activities are related, it can help managers and employees understand and communicate budget information in more tangible non-financial terms to help them understand better what is best done to improve and how to best perform their jobs.
Increased traceability and transparency that allows balancing capacity With a more sophisticated operational model, it can enable a richer set of tools for balancing capacity. It is good for optimization of value chain.
This approach of budgeting focuses on the planning role of budgets in the belief that budgeting nowadays fail because it is too finance-focused and higher level that it overlooks other non-finance oriented goals of many organizations.
It instead endeavors a more horizontal orientation that is able to cut across borders within the organization.
This enforces indirectly the employees of the company to serve the customers in the best way possible and ensure customer satisfaction. Activity based budgeting system eliminates all sorts of unnecessary activities, which helps the business to save its costs.
It takes into consideration all the steps involved in an activity. Based on the activity, work flow and value chain, ABB focuses on the entirely achievement, in order to enhance the capability of dealing with the affairs between departments.
ABB Method thus ensures that necessary measures are put across to allow the departments to work together for the benefit of the organization at large.
So that it could allocate the scarce resource more efficiently.
Analysis on financial index Traditional budgeting method analyses financial index by organization structure, while ABB could put financial index to every activity person by the activity characters and make the person responsible to the index.
With this, the resource allocation and activity consumption is transparent to get the optimization of resource allocation. This study removes all the unnecessary activities of the business. Since it generates a budget from activities and resources, it can highlight sources of imbalances, inefficiencies, and other areas for improvements which will then allow managers and employees to correct the inefficiencies.
By doing so, the business eliminates all sorts of bottlenecks associated with an activity and business functions are carried out more smoothly. By improving the flow of activities and resources, it makes it easier as well to evaluate performance by being able to specify who is accountable for certain activities may overlap in several departments.FUNCTIONAL AND ACTIVITY-BASED BUDGETING Budget a financial plan of the resources needed to carry out tasks and meet financial goals.
A quantitative expression of the goals the organization wishes to achieve and the cost of attaining these goals. Zero-based budgeting is an innovative approach towards budgeting in corporations that is based on the framing of assumptions about costs and benefits each time the budget is prepared.
A budget is a plan for the allocation of financial resources by an organization. Activity based budgeting (abb) is the method that the managers use to analyze various operations within the business to assist in improving the business by eliminating unnecessary operations.
This allows enough time to deal with those that can bring more profit to the business. Activity-Based Budgeting is a budgeting method in which budgets are prepared using Activity Based Costing mechanism after considering the overhead costs.
Activity-based budget is management accounting tool that considers the activities involving costs. Benefits of Activity-Based Budgeting Essay Sample.
Along with the development of globalization, companies must have an efficient system to keep the competitive advantage.
The broad application of new technology gives a basis to the advent of ABB. Nowadays, more and more companies start to use ABB in the budgeting process.
Activity based budgeting, in contrast to traditional budgeting, creates an operationally feasible budget prior to generating a financial budget. It generates budget from activity-based models of companies.Download